Settlement in Emissions Case Saves Millions

We successfully represented a client in the first formal hearing involving a disputed starting allocation under California’s South Coast Air Basin’s emissions cap and trade program.

Our client had purchased a specialty steel mill from a previous long-time owner who had failed for decades to properly report emissions.  The results of the hearing positioned our client to negotiate a settlement that saved them millions of dollars.

BACKGROUND

Starting allocations in a cap and trade program are vital.  They determine the number of credits and the expense companies will need to incur to either purchase credits from other emitters or to reduce their emissions to meet their allocations.  When our client, Gerdau, one of the world's largest steelmakers, discovered that the steel mill’s previous owner, TAMCO, had failed to properly report sulfur oxide emissions for several decades, the company promptly notified the South Coast Air Quality Management District (SCAQMD) of the underreporting error.  SCAQMD ordered Gerdau to amend its emissions reports.  Gerdau then applied for a new starting allocation under California’s Regional Clean Air Incentives Market or RECLAIM program based on the amended reports.  SCQAMD denied Gerdau’s application.  We appealed to the independent hearing board to exhaust all administrative remedies with the goal of positioning the client for a favorable settlement.

THE HEARING AND RESULT

After seven days of hearings before the SCAQMD-appointed independent board, including witness testimony and legal argument, the panel voted 3-2 against TAMCO’s claims.  However, in an extraordinary and highly unusual twist, that ruling had a vigorous written dissent in our client’s favor.  Hearing Board rules do not even contemplate written dissenting opinions and they are so rare that the current hearing board could not recall a single instance of a written dissent in its history.  That result positioned our client very favorably for subsequent negotiations.  Although TAMCO filed a writ petition appealing the decision to the court system, we negotiated a successful resolution before the appeal was heard by the Superior Court.  The settlement allowed TAMCO to apply penalty payments toward purchasing RECLAIM credits, which ultimately resulted in millions of dollars in savings.

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